The Federal Board of Revenue (FBR) will issue a procedure for the imposition of capital gains tax (CGT) on transfers of shares/securities in stock market in cases where court orders have been issued.
Sources told Business Recorder here on Saturday that the proposed CGT rules on stock market transactions would specifically cover the area of court order/litigation. There could be certain orders of the courts whereby transfer of securities may be required from an investor's account to another investor's account or any other person, e.g. deposit of securities with Nazir of the Court, transfer of securities in case of dispute among legal heirs, award of decree etc.
The FBR said that the Capital gains tax on transfer under a court order will depend on the contents of the order. For example, in case of an order in dispute among legal heirs, the transfer of securities may not be taxable being covered under Section 79 of the Income Tax Ordinance 2001. Similarly, in case of mergers and de-mergers, transfers would be tax neutral event. Whereas, in case of a decree against an investor, transfer of securities from his account may constitute taxable event.
The National Clearing Company of Pakistan Limited (NCCPL) shall be responsible to compute capital gains tax, where a clearing member report transfer under a court order as taxable event through Central Depository System. The computation of investment amount for the purpose of Rule 2 of the Eighth
In case of de-merger, the FBR said consequent to the order of the court, SECP or State Bank of Pakistan, a company may de-merged and split into two companies. Consequently, the shareholding of existing company is also divided into shares of the two companies ie existing company and the new company.
In the Central Depository System, in a shareholders account the existing company's shareholding is reduced to the revised shareholding whereas new shareholding in the new company is also recognised.